OCBC Research: Singapore Press Holdings - 15 Apr 2008

Still a Stalwart

Top strong, bottom weak. SPH reported its 2Q08 results yesterday with topline rising 19% YoY to S$301.8m, but net profit declined 6.3% YoY to S$99.6m. Lower than expected recognition from the Sky@Eleven project due to work delays and weaker investment income (-83.7% YoY) due to the volatile financial markets caused SPH to miss our net profit forecasts by about 9.5%. On an YTD basis, its bottomline performance was flattish at S$211.5m.

Necessary costs to secure future. The need to remain relevant towards its increasingly online inclined readers is one of SPH’s priorities. About S$150m has been committed for investment into new media businesses over a 5-year period which we anticipate is currently loss making. Along with yearly annual increments, this expansion has caused staff costs to rise 12% YoY to S$159m at half time.

Singapore’s newspapers do better than US. While US print advertising sales is in continuous decline coupled with slowing online revenue growth, SPH continues to move in tandem with the growing Singapore economy. A poll of economists projected Singapore to grow around 5.6% in 2008 despite the US slow down. We expect SPH to ride its advantageous monopolistic position in Singapore to turn in consistent net profits. We believe SPH’s largely local operations will continue to be relatively insulated from the slowing economies in the west.

Paragon still doing well. Paragon continues to attract top luxury brands and management indicated that renewals typically yield rent increments of 5-9%. Paragon’s makeover with 2 new floors for medical suites/offices and increased commercial NLA by 11,600 sqft will be finished in Oct 08 and should act as a strong pylon to support SPH’s income.

Still a stalwart in shaky markets. Despite mitigating our expectations on investment returns, we believe that SPH’s core business will continue to match Singapore’s economy growth pace and are mindful that bottomline will be supported by recognition from its Sky@Eleven project. Assuming a similar payout ratio as previous years, we estimate that the stock’s dividend yield could be 5.7% in FY08, making SPH an attractive defensive play for a shaky market. Using SOTP, we raise our fair value slightly to S$5.15 (vs. S$5.14) as SPH pays down its debt for paragon. Maintain BUY.

CIMB-GK Securities: Singapore Press Holdings - 15 Apr 2008

Still going strong

• In line. 2QFY08 earnings of S$99.6m (-6.2% yoy) were led by strong advertising revenues (+11.4% yoy) and a S$17m earnings contribution from sky@eleven. The strong core performance was partially eclipsed by weaker-than-expected investment income (-48% qoq) due to weaker financial markets. 1HFY08 earnings have now met 40% of our full-year forecast and consensus (SPH’s second half is typically stronger). An interim dividend of 8.0 Scts/share (+1.0 Sct yoy) was announced.

• Robust 18.9% yoy revenue growth. 2QFY08 core revenue (excluding sky@eleven’s S$24.2m contribution) grew 9.3% yoy, driven by strong advertising revenue (+11.4% yoy). This marked the fourth consecutive quarter of double-digit adex growth as SPH rode the tailwinds of a strong domestic economy. Property rental revenue grew 10% yoy as Paragon enjoyed rental reversions. Circulation revenue was flat (-1.1% yoy).

• 2QFY08 EBITDA margin expanded to 44.1% (+350bp yoy), benefiting from operating leverage at core operations and contributions from the higher-margin sky@eleven project. Robust topline growth helped SPH stay ahead of staff costs which rose 9.7% yoy on headcount increases and salary increments. SPH also benefited from weaker newsprint costs (US$575/tonne, -5% yoy) during the quarter.

• No signs of weakness yet. The impact of slowing global growth has yet to bite into adex demand. SPH continues to benefit from a tight labour market, as can be seen in its strong classifieds performance (+15% yoy). We believe Singapore’s economy remains well-supported by an immigration boom, the rollout of two integrated resorts and Singapore’s rise as a key global destination for business and leisure travellers.

• Reducing earnings estimate. Our FY08 earnings estimate has been trimmed by 5.5% to account for lower investment returns amid weakness in the financial markets and an intentional shift towards a more conservative portfolio.

• Maintain Outperform and sum-of-the-parts target price of S$5.20. In view of heightened market risk aversion, we continue to expect SPH to outperform the index on reliable earnings from its print-media monopoly, revenue recognition of sky@eleven, exposure to Singapore’s adex growth and a solid CY08 dividend yield of over 7%.

Kim Eng: Singapore Press Holdings - 15 Apr 2008

2Q08 results

Previous Day Closing price: S$4.43
Recommendation: BUY (maintained)
Target price: S$6.18 (Previous: $5.84)

♦ Another quarter of strong growth
SPH’s recurring earnings increased 36% in 2Q08 on revenue growth of 18.9%. Besides contribution from Sky@eleven, growth was also derived from the print advertisement business and increased rental income from Paragon. Year-to-date, SPH’s recurring earnings and revenue increased by 26.9% and 16.7% respectively. Interim dividend of 8cts/share (1H07: 7cts/share) was declared.

♦ Still the advertisers’ darling
Print advertisement revenue grew 11.3% y/y in 2Q08, continuing the double-digit growth momentum in the previous 3 quarters (Figure 1). Year-to-date, print advertisement revenue growth of 10.9% was ahead of our full-year forecast of 8%. Bearing in mind that advertising activity would decline if the current global economic woes persist, we are maintaining our 8% forecast. Upcoming events like Mobile Number Portability (MNP), Great Singapore Sale and F1 would lend support to our forecasts.

♦ Recognition schedule for Sky@eleven adjusted
Manpower shortage and inclement weather have delayed the construction of Sky@eleven. We are thus adjusting our recognition schedule, reallocating a larger proportion into FY09-10. SPH does not expect the delay to have any significant impact on costs and remain confident of achieving Temporary Occupation Permit (TOP) in FY2010.

♦ Newsprint prices poised to rise significantly
Newsprint prices are expected to trend up significantly due to a recent supply crunch in Asia and higher prices for raw materials and energy. While this threatens the operating margin of SPH’s newspaper and magazine segment, we reckon that a continual pursuit of operational efficiency and a growing property segment (of higher operating margin) would help offset the impact.

♦ TP raised to $6.18
From adjusting our recognition schedule for Sky@eleven, we have reduced our dividend forecast in FY08 from 32.1cts/share to 29.5cts/share, but have correspondingly raised our forecast in FY09-10. We have assumed a payout ratio of 95% on recurring income. Rolling forward our valuation into FY09, we derived a target price of $6.18 (implied FY09 divided yield of 5.5%).